State Power in a Globalised Economy: Rhetoric versus Reality

This paper examines the connotations that globalisation has for state and market actors, and the impact it has on policy choices. It evaluates the ongoing evolution of statehood and sovereignty with particular reference to the redefinition of the role of the state under conditions of contemporary globalisation. It looks at the impact that the process of globalisation has on various actors. Drawing on research on the political economy of reform and barriers to trade, it is argued that protectionist regimes perpetuate economic inefficiencies and impose high costs on industry which engender an uncompetitive environment. That notwithstanding, there remains a need to prioritise policy objectives but the task of prioritisation itself remains subjective. Even though transnational corporations (TNCs) appear to challenge the authority of the state, it is argued that TNCs are critically dependent on states for providing an efficient legal and regulatory framework that would make markets work. In this scenario, there remains a cogent argument for states to assert their authority, especially in the sphere of economic regulation (‘getting the prices right’) and in the process of reconciling the preferences expressed by various interest groups and actors. Within this framework, this paper examines the functions of government at national and local levels. The paper argues that excessive reliance on market mechanisms or command planning methods impose solutions on the economy at large, and this is a process that faces inherent dangers (by creating dissent) especially in a democratic polity. Such an approach is also likely to exclude many people and thereby engender alienation. There emerges an enduring economic rationale for planning in order to realise the optimal use of scarce resources so as to maximise output, while at the same time providing a route to reconcile divergent choices, as expressed by various interest groups and actors within the state. The main challenges that emerge for states are the need to avoid both bureaucratic capture and the negative effects of directly unproductive rent seeking activities undertaken by the proprietary elites within states, while carrying out these key tasks. JEL classification: H1, L5, P5